Software AG: Accelerates growth in its digital business
April 21, 2017 --
DGAP-News: Software AG / Key word(s): Quarterly / Interim Statement/Quarter Results
SOFTWARE AG ACCELERATES GROWTH IN ITS DIGITAL BUSINESS
- North America: Continuously strong performance in the world's largest technology market
- Germany: Multiple major Internet of Things (IoT) and Industry 4.0 customer projects boost the digital business performance
- Acquisition of Industrial Internet specialist Cumulocity further strengthens Software AG's technology leadership
- Profitability remains on a high level
- Full confirmation of outlook 2017
All figures are rounded unless otherwise indicated.
Darmstadt, Germany, April 21, 2017 - Software AG (Frankfurt TecDAX: SOW) today announced its financial figures (IFRS, preliminary) for the first quarter of 2017. An increasing number of large companies are relying on Software AG's leading technology to drive their digital transformations. Additionally, the IoT and Industry 4.0 adoption boosted the performance of the company's largest business line - the Digital Business Platform (DBP). With a license revenue jump of 18 percent and increased product revenues of 12 percent, Software AG strongly demonstrated its increasing relevance and digital leadership. Driven by a strong performance in North America, the global early adopter market, and propelled by new Industry 4.0 projects in Germany, DBP product revenue exceeded the EUR100 million benchmark for the first time in a first quarter. Reflecting the company's growing success in the IoT market and extending its technology leadership, Software AG acquired the Industrial Internet specialist Cumulocity at the end of Q1. Cumulocity's cloud-based platform integrates IT applications with physical devices (Operational Technology). Moreover, Software AG's database business Adabas & Natural (A&N) grew by 8 percent in maintenance revenue demonstrating stability and a high degree of customer loyalty as seen in 2016. The Consulting business division also developed very positively and recorded revenue growth of 9 percent and a double digit segment margin. This development underlines the successful transformation of the company into a strategic partner for major enterprises delivering high value digital consulting services. With an overall stable revenue performance, the Group continued to maintain its profitability at a very high level: the operating profit margin (EBITA, non-IFRS) was 27.3 percent, exceeding expectations. Based on these positive business developments in Q1 and the depth of the project pipeline for the rest of the year, Software AG fully confirms its outlook for the year 2017.
"The outstanding success of the Digital Business Platform in Q1 validates our strategic focus on profitable growth. We entered the year as we finished the previous one: with strong momentum. This positive trend is also evidence that enterprises recognize how important it is to invest in leading Internet of Things and Industry 4.0 technologies", said Karl-Heinz Streibich, CEO of Software AG. "Digital transformation has become the maxim of all industries and, internationally, we are taking a pioneering role in driving digitalization through strategic co-innovation partnerships with world market leaders such as Bosch, Dürr, Dell, Huawei and others" continued Streibich.
"In the first quarter of 2017, we further expanded revenue in our growth segment while maintaining our operating profit margin at a consistently high level. Revenue growth and thus increase in profitability remain or declared priorities. We also successfully advanced the development of our leading portfolio through the strategic innovation-driven acquisition of Cumulocity in the first quarter. Therefore, we have established an excellent and strong starting position for the rest of the year and beyond," commented CFO Arnd Zinnhardt.
Business line development
In the Digital Business Platform (DBP) segment, license revenues of EUR38.4 million (Q1 2016: EUR32.7 million) were generated in the first quarter, an increase of 18 percent compared to the previous year. Maintenance revenue rose to EUR67.2 million (Q1 2016: EUR61.9 million) in the same period, 9 percent higher than in the previous year. Accordingly, the DBP product revenue (licenses + maintenance) amounted to a total of EUR105.6 million (Q1 2016: EUR94.5 million) in the first quarter-an increase of 12 percent.
The Adabas & Natural (A&N) division improved its maintenance revenues to EUR40.1 million (Q1 2016: EUR37.0 million), an increase of 8 percent compared to the previous year. The positive development of maintenance revenues underscores the stability of the business and high level of loyalty of the A&N customer base. A further stabilizing factor was the company's "Adabas & Natural 2050+" innovation program which provides support and digital innovations for customers beyond the year 2050. With this program, Software AG is contributing, in the long term, to protecting its customers' investments and actively modernizing their IT landscapes. Measured against the extraordinarily strong 2016 first quarter, A&N product sales declined to EUR47.9 million (Q1 2016: EUR63.4 million). The main reason was the license sales development which as expected was lower, reaching EUR7.8 million (Q1 2016: EUR26.4 million). While Q1 2016 performance was driven by extraordinarily early capacity expansions and contract renewals, Q1 2017 reflects a normal seasonal license revenue development. Therefore, the company remains confident in delivering its A&N total year revenue guidance.
Sales in the Consulting division rose to EUR52.3 million (Q1 2016: EUR48.0 million) in the first quarter, an improvement of 9 percent. The segment contribution margin increased to 10 percent (Q1 2016: 4 percent).
Total revenue and earnings development
In the quarter under review, Software AG recorded stable total turnover of EUR205.9 million (Q1 2016: EUR206.2 million). The Group's maintenance revenue developed very positively reaching EUR107.2 million (Q1 2016: EUR98.9 million), an increase of 8 percent. As a result of the expected weaker development in the A&N license business, the Group's license revenue of EUR46.3 million (Q1 2016: EUR59.1 million) was below the previous year's figure in the quarter under review. Accordingly, the company's product sales (licenses + maintenance) totaled EUR153.5 million (Q1 2016: EUR158.0 million) in the first quarter.
Due to EUR5.2 million higher investments of EUR92.3 million (Q1 2016: EUR87.1 million) in research and development as well as sales and marketing, the company's earnings before interest and taxes EBIT amounted to EUR41.5 million (Q1 2016: EUR45.3 million) in the first quarter. This corresponds to an EBIT margin of 20.2 percent (Q1 2016: 22.0 percent). The operating EBITA (non-IFRS) reached EUR56.3 (Q1 2016: EUR59.1 million). The operating profit margin (non-IFRS) of 27.3 percent (Q1 2016: 28.7 percent) continued to be on a very high level.
The net result reached EUR27.3 million (Q1 2016: EUR29.5 million), while earnings per share (non-IFRS) amounted to EUR0.49 (Q1 2016: EUR0.51).
The equity ratio was 61 percent (Q1 2016: 59 percent). The operating cash flow reached previous year's record high and amounted to EUR61.7 million (Q1 2016: EUR61.9 million). Due to a one-time property investment in Q1, the free cash flow of EUR43.3 million (Q1 2016: EUR60.5 million) was below last year's record level.
As of March 31, 2017, Software AG employed a total of 4,486 (Q1 2016: 4,299) employees (full-time equivalents), of which 1,891 (Q1 2016: 1,853) in consulting and service, 1,122 (Q1 2016: 1,011) in research and development, 863 (Q1 2016: 833) in Sales and Marketing as well as 610 (Q1 2016: 602) in Administration.
Outlook for 2017
Software AG confirms its forecast for fiscal year 2017 and expects a currency-adjusted increase in DBP sales of between 5 and 10 percent. In the A&N segment, the company expects a currency-adjusted decline of 2 to 6 percent compared to the previous year. The Group also expects a high operating profit margin (EBITA, non-IFRS) of 30.5 to 31.5 percent.
* At constant currency
A conference call for financial analysts and media representatives will take place on Friday, April 21, 2017 at 9:30 am CEST (08:30 BST). For dial-up information, visit the company's website at www.SoftwareAG.com/investors.
* acc = at constant currency
About Software AG
The digital transformation is changing enterprise IT landscapes from inflexible application silos to modern software platform-driven IT architectures which deliver the openness, speed and agility needed to enable the digital real-time enterprise.
Software AG offers the first end-to-end Digital Business Platform, based on open standards, with integration, process management, in-memory data, adaptive application development, real-time analytics and enterprise architecture management as core building blocks. The modular platform allows users to develop the next generation of application systems to build their digital future, today.
With over 45 years of customer-centric innovation, Software AG is ranked as a leader in many innovative and digital technology categories. Software AG has 4,500 employees, is active in 70 countries and had revenues of EUR872 million in 2016.
Learn more at www.softwareag.com.
Software AG | Uhlandstraße 12 | 64297 Darmstadt | Germany
Detailed press information about Software AG including a picture and multimedia database are available under: www.softwareag.com/press
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